Citing an internal memo circulated among Japanese police and financial regulators, The New York Times reports that investigators believe that at least US$4.9 billion is unaccounted for in the ongoing financial scandal at Olympus. They are investigating the possibility that much of that money may have gone to companies with organized crime links. Investigators suspect that Olympus executives may have enlisted organized crime groups to help the company perform complex, fraudulent financial transactions designed to hide huge investment losses and then paid those crime groups enormous sums for their services.

Scandal:
The New York Times website

This is the first indication from official sources of the amount of money that Olympus may have lost or misappropriated. It is also the first sign from officials that organized crime elements may be involved in the scandal, a possibility initially raised by the Japanese business magazine,
Facta, in a story published in August. That story began the chain of events that has exposed two decades of financial wrongdoing at the 92-year-old camera and optical instruments maker.

Yesterday’s
Times article, and a previous article by the paper published on November 9th, both by reporter Hiroko Tabuchi, provide a good explanation of the scope and background of the scandal.

In brief, it appears that in the late 1980s Olympus, like many Japanese companies, became heavily involved in what was called “zaitech” — speculative securities and real estate investments. Companies turned to zaitech as a way to earn profits when their core manufacturing businesses were struggling. When the Japanese economic bubble burst around 1990, many companies suffered huge losses on these zaitech investments.

A very large number of those companies chose not to declare their losses. Assisted by big Japanese banks and financial firms, they developed a complex ecosystem of shadowy companies and financial instruments to keep the losses concealed, year after year. Three recently implicated Olympus executives have admitted perpetuating such a scheme. They claimed that the financial irregularities exposed in the last two months were attempts to finally declare the company’s losses from the early 1990s without revealing their true source or scope, by hiding them in mergers and acquisitions transactions.

The latest
Times report, however, indicates that Japanese authorities believe that the original
Facta magazine article alleging organized crime involement may have been right, and the Olympus scandal is not limited to a simple attempt to hide, and then finally declare, past losses.